Against the Wind

Struggling Utility RWE Not Ready to Blow Off Wind Energy

rwe wind park dpa
An RWE wind park. The company needs to save money and is seeking partners for its planned wind farm off the northern coast of Germany.
  • Why it matters

    Why it matters

    RWE Innogy is committed to renewable energy and wind parks, but money woes are forcing it to seek outside investors.

  • Facts

    Facts

    • The Nordsee One offshore wind farm will be the world’s largest, providing electricity to 1 million homes.
    • After delays in connecting turbines to the mainland, RWE Innogy’s Nordsee Ost will begin operations in 2015.
    • RWE Innogy’s green energy program includes wind energy, hydroelectric and biofuel power plants.
  • Audio

    Audio

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RWE urgently needs to cut costs. The electric utility is in such a deep existential crisis that it can no longer afford major investments. This even applies to its subsidiary RWE Innogy, responsible for its future-oriented renewable energy business.

Nevertheless Hans Bünting, the chief executive of RWE Innogy, is now embarking on a major project, the construction of another offshore wind farm in the North Sea.

“We are in the midst of positive talks,” he told Handelsblatt. “And I am confident that we will achieve a successful outcome in the coming months.” Because of the parent company’s troubled financial situation, Mr. Bünting intends to bring in outside investors for the project.

The project is called Nordsee One, a planned offshore wind farm 40 kilometers (25 miles) north of the North Sea island of Juist. The initial phase, involving the construction of 54 turbines, comes with a price tag of about €1.2 billion ($1.6 billion).

But it’s only the first stage of a wind farm that could become one of the world’s largest, with a total planned output of 1,000 megawatts. It would be enough to supply electricity to a million households, at a total project cost of €3 billion.

“We want to limit ourselves to a minority position and, if possible, manage the business. ”

Hans Bünting, RWE Innogy, chief executive

Two years ago, Mr. Bünting had shelved the project.

Back then, liability rules were unclear because the German government had failed to create the legal basis for the expansion of wind energy. But now it has resolved the problem and clarified, for example, who is responsible for delays in connecting finished plants to the grid.

But then a new problem threatened the investment: RWE’s rigid cost-cutting brought on by the collapse of the German conventional energy business, which was thrown into turmoil by the government’s decision to heavily subsidize alternative energy providers.

The decision, taken by the German chancellor, Angela Merkel, in the wake of the Fukushima nuclear plant disaster in Japan, has led to a glut of energy on the German market which has seen the wholesale price for electricity fall by half.

RWE, like its rival E.ON., was forced to shutter its own nuclear plants and set in motion rigid cost cuts to stem mounting losses. Slashing debt at RWE now has priority over new investments.

Nevertheless, Mr. Bünting still intends to build the wind project with outside investors. “We want to limit ourselves to a minority position and, if possible, manage the business,” he said. He envisions pension funds and private equity firms as partners.

Nordsee One would be the company’s second offshore wind farm in Germany. The first, Nordsee Ost, is expected to begin commercial operation in the first quarter of next year – two years behind schedule because grid operator Tennet had  problems connecting the turbines to the mainland. In the case of Nordsee Ost, 35 kilometers north of the Helgoland islands, Mr. Bünting can also imagine “selling shares once the wind farm is up and running.”

The days of mega-investments shouldered entirely by the company are over at RWE, at least for now. Mr. Bünting can only invest €1 billion between this year and 2016, a sum he was able to invest annually in previous years. The size of the RWE subsidiary’s investment budget after that is completely up in the air.

RWE’s green energy subsidiary, like its corporate parent, has also been forced to cut costs internally. “Part of that effort involves transferring administrative tasks to the new central units,” Mr. Bünting said. “And we also have our own cost-cutting goals.”

Nevertheless, he continues to invest. The terrestrial wind farm business will also become more important for RWE Innogy, as measured by investment. RWE already operates terrestrial wind turbines with a total output of 1,900 megawatts, or five times as much as the more-costly offshore wind farms.

The utility, which is also betting on hydroelectric and biofuel power plants, wants to build more wind farms, especially in Germany, Britain, the Netherlands and Poland. It is not considering other markets outside Europe at this time.

Translated by Christopher Sultan

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